The Indian tyre industry - an overview
By Ever since the first Ind | 31 Mar 2007
Market profile
While the tyre industry is mainly dominated by the organised sector, the unorganised sector holds sway in bicycle tyres. The major players in the organised tyre segment consist of MRF, Apollo Tyres, Ceat and JK Industries, which account for 63 per cent of the organised tyre market. The other key players include Modi Rubber, Kesoram Industries and Goodyear India, with 11 per cent, 7 per cent and 6 per sent share respectively. Dunlop, Falcon, Tyre Corporation of India Limited (TCIL), TVS-Srichakra, Metro Tyres and Balkrishna Tyres are some of the other players in the industry. MRF, the largest tyre manufacturer in the country, has strong brand equity. While it rules supreme in the industry, other players have created niche markets of their own
Sector specifics
The tyre industry is a major consumer of the domestic rubber production. Natural rubber constitutes 80 per cent of the material content in Indian tyres. Synthetic rubber constitutes only 20 per cent of the rubber content of a tyre in India. World wide, the ratio of natural rubber to synthetic rubber is 30:70. Apart from natural and synthetic rubber, rubber chemicals are also widely used in tyres.
Most of the RSS-4 grade natural rubber required by the Indian tyre industry is domestically sourced, with only a marginal amount being imported. This is an advantage for the industry, since natural rubber constitutes 25 per cent of the total raw material cost of the tyres.
The two types of synthetic rubber used in tyres are Poly Butadiene Rubber (PBR) and Styrene Butadiene Rubber (SBR). The former is used in most of the tyres, while the latter is mainly used in the radials for passenger cars. Synthetic rubber accounts for 14 per cent of the raw material cost. Unlike in the case of natural rubber, India imports 60 per cent of its synthetic rubber requirements.
Apart from rubber, major raw materials are nylon tyre cord and carbon black. The former is used to make the tyres strong and impart tenacity to it. The latter is responsible for the colour of the tyre and also enhances the life span of the tyre. Nylon tyre cord comprises 34 per cent, while carbon black accounts for another 13 per cent of the raw material cost. In India, the carbon black used is of the N660, N220 and N330 variety.
To sum up, the tyre industry is highly raw-material intensive, with raw material costs accounting for 70 per cent of the cost of production. Fortunately for the industry, the rubber and carbon black prices have taken a beating recently, which means lower costs for the tyre industry. The export-import policy allows free import of all types of new tyres and tubes. However, import of retreaded tyres, either for use or for reclamation of rubber is restricted. This has led to used tyres being smuggled into the country under the label of new tyres. Though tyre import and all raw materials for tyres except natural rubber are under open general license (OGL), only import of natural rubber from Sri Lanka is eligible under OGL.
Sector trends
Crossply tyres have been used in India for several decades. In these tyres, the ply cords run across each other or diagonally to the outer surface of the tyre. Rayon and nylon tyre cords are used as the reinforcing medium. These tyres can be retreaded twice during their lifetime and are hence preferred by Indian transport operators who normally overload their trucks. A vehicle with the normal carrying capacity of around 12 tonnes is usually loaded with double the capacity. Moreover, one also has to contend with the bad suspensions and bad road conditions. No wonder, 95 per cent of the tyres used in India are crossplies.
Radial tyres have their cords running radially from bead at 90 degrees angle to the rim or along the outer surface of the tyre. The reinforcing mediums used in these tyres are polyester, nylon, fibreglass and steel. Hence, these tyres are 20 per cent more expensive than the crossplies. But they have a longer life and provide lower fuel consumption. The unhealthy condition of the Indian roads has resulted in radial tyres accounting for only 5 per cent of the tyre industry as against a global trend of 60 per cent. With two-thirds of the capacity of all major tyre manufacturers being reserved for radials, this is a real cause for concern.
Outlook
Globally, the OEM segment constitutes only 30 per cent of the tyre market, exports 10 per cent and the balance from the replacement market. In India, the scenario is quite different. Nearly 85 per cent of the total tyre demand in the country is for replacement. This anomaly has placed the retreaders in a better position than the tyre manufacturers. Retreading is looming over the tyre industry as a colossal threat. The Coimbatore based Elgi Tyres and Tread Ltd., the largest retreader in India, is giving the tyre barons sleepless nights.
Simply put, rethreading is replacing the worn-out tread of the old tyre with a new one. The popularity of rethreading stems from the fact that it costs only 20 per cent of a new tyre but increases its life by 70 per cent to 80 per cent. Most of the transporters in India retread their tyres twice during its lifetime, while a few fleet owners even retread thrice. In their zealousness to economise costs, they overlook the reality that retreading reduces the quality of the tyre. It is highly popular in the South unlike in the North where the transporters overload their trucks and have to ply their vehicles in a rough terrain an environment in which buying a new tyre is the best option. Though retreading has penetrated 25 per cent of the tyre market, it has not made much of a dent in the rapidly growing two-wheeler and passenger car segments.
Conclusion
The industry, already bogged by over capacity, is facing a severe threat of dumping of cheap tyres by South Korea. Under the Bangkok agreement, signed between India and South Korea in 1976, import of tyres from the latter into India would attract a concessional duty of 33 per cent as against the normal tariff of 40 per cent.
Two years ago, the industry estimated the growth in the passenger car radial demand at 20 per cent per annum. However, the auto recession has hit them badly. But South Korea made a killing by dumping cheap car radial tyres and walked away with 11 per cent of the tyre market.
Another threat to the industry is the price of its raw materials, most of which are petroleum by-products. Carbon, synthetic rubber and nylon tyre cord are offshoots of petrochemicals. Thus, the future of the industry will swing with the supply of crude oil.
The biggest threat, however, is yet to fully materialise. It will be from global majors like Bridgestone and Michelin, which control 36 per cent of the global tyre market. These players have set up their bases in Southeast Asia and the slump of the markets in this region, coupled with the vast growth potential of the Indian market, is beckoning them towards India. Bridgestone has tied up with ACC for a 100 per cent radial tyre unit and Michelin is also marketing its products through retail outlets. The industry is driven more by volumes than by margins and each of the big five in the global tyre industry Continental, Michelin, Goodyear, Pirelli and Bridgestone generate an annual tyre production equivalent to the total demand of the Indian market. These MNCs have deep pockets and can easily withstand losses for 2-3 years. Their financial muscles also permit them to invest in R&D, which is beyond the reach of the average Indian tyre manufacturer.
Brief on the major players
